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Fitch says Thailand Resilient but Political Risks Remain

Fitch Ratings says Thailand’s economic performance has proved resilient to global economic volatility and domestic political instability in the past three years

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Fitch Ratings says Thailand’s economic performance has proved resilient to global economic volatility and domestic political instability in the past three years, although these remain key risks and could constrain longer-term trends in growth and in the public finances. This was the key message at Fitch Ratings (Thailand)’s 10th anniversary annual conference in Bangkok.

The Governor of the Bank of Thailand, Dr Prasarn Trairatvorakul, was the conference’s guest of honor and provided the opening keynote address.

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Fitch believes it is prudent to await more evidence on the new government's policy agenda and implementation

Andrew Colquhoun, Fitch’s Senior Director and Head of Asia-Pacific Sovereigns commented that while Thailand, like many emerging markets, is narrowing the gap with advanced economies, the pace of improvement is being slowed by inflation pressures, as well as by more country-specific factors such as political risks. Although robust economic performance is exerting upward pressure on the sovereign ratings, these remain constrained for now by uncertainties over whether the recent elections have materially eased political risks. “Furthermore, Fitch believes it is prudent to await more evidence on the new government’s policy agenda and implementation,” Mr Colquhoun added.

Mark Young, Fitch’s Managing Director and Head of Asia-Pacific Bank group said that Thailand is one of the Asia-Pacific countries, outside China and Vietnam, whose banking system is reasonably well positioned to face these more challenging times “The prospects of slower global growth may aid regional policy makers by slowing credit growth and reducing the potential for asset bubbles. That said, given the growing interconnectedness between China and other Asia-pacific countries, a Chinese slowdown will be negative for the region,” Mr Young said.

Vincent Milton, Managing Director of Fitch Ratings (Thailand) Limited said that “In the past decade, credit trends in Thailand across both corporate and bank sectors have generally been positive, as a result of substantial restructuring and recapitalization following the Asian financial crisis in 1997-1999”. “More modest growth in the years leading up to the current global financial crisis has resulted in Thai banks and corporates being better positioned to weather the recent economic and financial shocks,” Mr Milton noted.

As for major Thai banks, Patchara Sarayudh, Associate Director of Thai Financial Institutions, commented that the Outlook for Thai banks are currently Stable, with Siam Commercial Bank Public Company Limited (‘BBB+’/Stable) and Kasikornbank Public Company Limited (‘BBB+’/Stable) and Bangkok Bank Public Company Limited (‘BBB+’/Stable) reporting the strongest overall results for H111. “While continued high loan growth and loan concentration risks pose medium term risks, the major Thai banks’ strong profitability and capital buffers should help withstand a period of weaker economic growth,” Mr Sarayudh added.

Commenting on Thai corporates, Obboon Thirachit, Fitch’s Associate Director of Thai Corporates says the Outlook for most major Thai corporates such as Siam Cement Public Company Limited (‘A(tha)’/Positive) and PTT Public Company Limited (‘BBB’/Stable) are generally Stable, reflecting fundamental improvement in their financial profiles. “Nevertheless, there remain some downside risks regarding weakening global growth and rising cost pressures due to higher input costs. Higher investment could also see leverage ratios increase in the medium term,” Mr Thirachit said.

The conference was attended by over 300 senior executives and officials across the government, financial and corporate sectors.

Contact:

Vincent Milton
Managing Director
+66 2 655 4755
Fitch Ratings (Thailand) Limited
Wave Place 13th Floor
Wireless Road, Lumpini, Patumwan
Bangkok 10330

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